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Domestic gold cheaper than IMF's, ex-China bank adviser says
By Zhou Xin and Tom Miles
Thursday, November 5, 2009
BEIJING -- It would be cheaper for China to buy domestically mined gold than purchase bullion the International Monetary Fund is seeking to sell, a former adviser to the People's Bank of China said on Thursday.
Asked whether China should emulate India, which last month bought 200 tonnes of IMF gold at an average price of $1,045 an ounce, Li Yang told reporters on the sidelines of a financial forum: "China's gold is much cheaper than that."
Li, who used to be a member of the PBOC's monetary policy committee, is now a senior researcher at the Chinese Academy of Social Sciences.
China, the world's top producer and consumer of gold, is widely assumed to still be buying up domestic gold production after revealing in April that it held 1,054 tonnes of gold, a jump of 76 percent from its last word on the subject six years previously.
And its colossal buying power -- $2.27 trillion in foreign exchange reserves at the end of September -- makes matching India's $6.7 billion IMF purchase look trifling.
Many market watchers see China buying IMF gold as likely, if not inevitable, because of its desire to diversify its financial reserves away from U.S. dollars.
That was an important consideration, said a senior central bank official, although one with no direct authority over gold buying.
"China is the world's biggest gold producer, so there's no urgency for us, as there is for India, to snap up big volumes whenever they come onto the global market. It's cheaper for us to buy gold from the Chinese market, but it doesn't help diversify our huge foreign exchange reserves," said the official, who declined to be identified.
"To diversify our portfolio, we should spend dollars on things like gold. But the catch is that even if China bought half the world's annual gold supply, it would only cost a few tens of billions of dollars, which is tiny compared to China's huge reserves.
"Having said that, I think China still should buy some IMF gold this time, and it might indeed do so, but it's unlikely to take all the 200 tonnes that are left as the price is obviously not particularly appealing.
"It would be a symbolic purchase, but better than nothing."
Xia Bin, head of the Financial Department of the Development and Research Centre, a key think-tank for the State Council, China's cabinet, also said China could buy IMF gold.
"Why not? Even if it's sold at a market price, we should still buy," he said, making clear this was a personal view and not state policy.
"India's okay with it, why shouldn't we be? What's the use for so many dollars, whose purchasing power is weakening anyway? With so many foreign reserves in hand, I think China should buy, without doubt."
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